EXHIBIT 10.12
SECURITIES PURCHASE AGREEMENT
DATED AS OF MAY 10, 2000
AMONG
INTERNET SPORTS NETWORK, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
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ARTICLE I Purchase and Sale of Securities. . . . . . . . . . . . . . . . . . .1
Section 1.1 Purchase and Sale of Debentures and Warrants . . . . . . . . . . . .1
Section 1.2 The Conversion Shares. . . . . . . . . . . . . . . . . . . . . . . .
Section 1.3 The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.4 Purchase Exempt from Registration. . . . . . . . . . . . . . . . . .1
ARTICLE II Representations and Warranties . . . . . . . . . . . . . . . . . . . . .2
Section 2.1 Representation and Warranties of the Company . . . . . . . . . . . .2
Section 2.2 Representations and Warranties of the
Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 3.1 Securities Compliance. . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.2 Registration and Listing . . . . . . . . . . . . . . . . . . . . . 15
Section 3.3 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.5 Keeping of Records and Books of Account. . . . . . . . . . . . . . 15
Section 3.6 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.7 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.8 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.9 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.10 Regulation S . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.11 Subsequent Financing . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.12 Reservation of Shares. . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.13 Transfer Agent Instructions. . . . . . . . . . . . . . . . . . . . 17
Section 3.14 Amendment of Articles to Authorize Preferred Stock . . . . . . . . 17
Section 3.15 Registration of Conversion Shares. . . . . . . . . . . . . . . . . 17
Section 3.16 Exchange Agreement . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.1 Conditions Precedent to the Obligation of the Company
to Sell the Debentures and Warrants . . . . . . . . . . . . . . . 20
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Debentures and Warrants. . . . . . . . . . . . . . 20
ARTICLE V Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.1 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.1 General Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . 24
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Table of Contents
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(continued)
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Section 6.2 Indemnification Procedure. . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VII Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.2 Specific Enforcement, Consent to Jurisdiction. . . . . . . . . . . 25
Section 7.3 Entire Agreement; Amend. . . . . . . . . . . . . . . . . . . . . . 26
Section 7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.5 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.8 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . 28
Section 7.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.12 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 28
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is dated as of May
10, 2000 by and among Internet Sports Network, Inc., a Florida corporation (the
"Company"), and each of the Purchasers of 5% Redeemable Convertible Debentures
of the Company whose names are set forth on Exhibit A hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
Section 1.1 PURCHASE AND SALE OF DEBENTURES AND WARRANTS. Upon
the terms and conditions set forth in this Agreement, the Company shall issue
and sell to the Purchasers for delivery at the respective addresses of the
Purchasers, against payment to the Company of the respective amounts set forth
opposite the Purchasers' names in Exhibit A hereto:
(a) up to $1,956,082 aggregate principal amount of the
Company's Redeemable Convertible Debentures, in the form attached hereto as
Exhibit B (the "Debentures"), bearing an initial interest rate of 5% per annum
(subject to increase under specific conditions) and maturing on May 9, 2003 (the
"Maturity Date"). The Debentures shall be convertible into shares (the
"Conversion Shares") of the Company's common stock, par value $0.001 per share
(the "Common Stock") at the Conversion Price (as defined in the Debentures) and
in the manner provided for in the Debentures. The term "Debentures" as used
herein shall include the Debentures originally issued pursuant to the provisions
of this Agreement and any debentures delivered in substitution or exchange
therefor; and
(b) warrants, in the form attached hereto as Exhibit C (the
"Warrants"), to purchase up to 585,000 shares (the "Warrant Shares") of the
Company's Common Stock, which Warrants shall expire on the fifth anniversary of
the issuance date of such Warrants.
Section 1.2 THE CONVERSION SHARES AND WARRANT SHARES. The
Company has authorized and has reserved and covenants to continue to reserve a
sufficient number of its authorized but unissued shares of Common Stock, to
effect the conversion of the Debentures and the exercise of the Warrants. The
Conversion Shares and the Warrant Shares are sometimes collectively referred to
as the "Shares."
Section 1.3 CLOSING.
(a) The closing of the purchase and sale of the Debentures and
Warrants to be acquired by the Purchasers from the Company under this Agreement
shall take place at the offices of Parker Chapin LLP, The Chrysler Building, 405
Lexington Avenue, New York, New York 10174 at 10:00 a.m. E.S.T. (i) on the date
on which the last to be fulfilled or waived of the conditions set forth in
Article IV hereof and applicable to the Closing shall be fulfilled or waived
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in accordance herewith or (ii) such other time and place or on such date as
the Purchasers and the Company may agree upon (the "Closing Date"). Each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing
Date.
(b) The Company acknowledges receipt from Aspen
International, Ltd. ("Aspen") and Tonga Partners, LP ("Tonga") of payment for
their respective pro rata portion of the Debentures and Warrants, as
evidenced by two promissory notes issued by the Company in favor of each of
Aspen and Tonga for the principal amount of $250,000 each (the "Promissory
Notes"). At the Closing, the Company shall exchange each Promissory Note for
(i) Debentures in the principal amount equal to the total amount of principal
and interest accrued and outstanding under such Promissory Note on the
Closing Date and (ii) Warrants exercisable for up to 75,000 shares of the
Common Stock.
(c) On or before the Closing Date, (a) the Company shall
execute and deliver to the escrow agent (the "Escrow Agent") identified in the
form of Escrow Agreement attached hereto as Exhibit I (the "Escrow Agreement")
all applicable agreements, documents, instruments and writings required pursuant
to Section 4.2 herein (collectively, the "Closing Documents"), to be delivered
by the Company including, without limitation, instruments for Debentures in the
principal amount and Warrants exercisable for the number of shares of Common
Stock set forth opposite each Purchaser's name on Exhibit A, as applicable, and
(b) each of the Purchasers shall pay by wire transfer of immediately available
funds into escrow in accordance with the Escrow Agreement such Purchaser's
Purchase Price, as applicable, and execute and deliver all applicable
agreements, documents, instruments and writings required pursuant to Section
4.1, to be delivered by such Purchaser. In regard to the Closing, the Escrow
Agent shall give notice (by telephone or other means) (an "Escrow Agent Notice")
to the parties hereto when the Escrow Agent has received all of the Closing
Documents and wire transfer the funds constituting the Purchase Price and
deliver the other Closing Documents to the Company pursuant to the terms of the
Escrow Agreement. As soon thereafter as is practicable on the Closing Date, the
Escrow Agent shall deliver the Company's Closing Documents to the Purchasers,
including applicable instruments representing the Debentures and Warrants being
purchased.
Section 1.4 PURCHASE EXEMPT FROM REGISTRATION UNDER THE
SECURITIES LAWS. The Company and the Purchasers are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the Commission under the Securities Act of 1933, as amended (the
"Securities Act").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule delivered
with this Agreement as follows:
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(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Florida and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted. The Company does not have any subsidiaries except as set forth
on SCHEDULE 2.1(a) hereto. The Company and each such subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a material adverse effect on the Company's financial condition.
(b) AUTHORIZATION; ENFORCEMENT. Except for the Shareholder
Approval (as defined in Section 3.17 hereof) and the filing of the Amendments
(as defined in Section 3.14 hereof), the Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Debentures and
Warrants, the Registration Rights Agreement (as defined in Section 3.15 hereof)
and the Exchange Agreement (as defined in Section 3.16 hereof) (collectively,
the "Transaction Documents") and to issue the Conversion Shares in accordance
with the terms hereof and the Debentures and the Warrant Shares in accordance
with the terms of the Warrants. Except for the Shareholder Approval and the
filing of the Amendments with the Florida Department of State, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action, and, except for
the Shareholder Approval, no further consent or authorization of the Company or
its board of directors or shareholders is required. Each of the Transaction
Documents have been duly executed and delivered by the Company. Each of the
Transaction Documents constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) CAPITALIZATION. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of April 30,
2000 are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding shares of
the Company's Common Stock have been duly and validly authorized. Except as set
forth on SCHEDULE 2.1(c) hereto, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company. Furthermore, except as set forth in this
Agreement and the Registration Rights Agreement and as set forth on
SCHEDULE 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on SCHEDULE 2.1 (c) hereto,
the Company is not a party to any agreement granting registration or anti-
dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any
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shares of the capital stock of the Company. Except as set forth or on
SCHEDULE 2.1(c) hereto, the offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Closing complied with all applicable Federal and state securities laws, and
no shareholder has a right of rescission or damages with respect thereto
which would have any adverse effect on the business, operations, properties,
prospects, or financial condition of the Company or its subsidiaries and
which is material to such entity or other entities controlling or controlled
by such entity (a "Material Adverse Effect"). The Company has furnished or
made available to the Purchasers true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof and the Company's
Bylaws as in effect on the date hereof (the "Bylaws").
(d) ISSUANCE OF SECURITIES.
(i) The Debentures and Warrants to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof and thereof, the
Debentures and Warrants shall be validly issued and outstanding, and entitled to
the rights and preferences set forth therein. When the Shares are issued in
accordance with the terms of the Debentures or the Warrants, as applicable,
such Shares will be duly authorized by all necessary corporate action and
validly issued and outstanding, fully paid and non-assessable, and the holders
shall be entitled to all rights accorded to a holder of Common Stock.
(ii) Except as set forth on SCHEDULE 2.1(d), no consent,
approval or authorization of any creditor of the Company or other person is
required as a condition to or otherwise in connection with the Company's
execution, delivery or performance of any of its obligations under this
Agreement, the Transaction Documents, the Debentures or the Warrants, or issue
and sell the Debentures, Warrants and the Shares in accordance with the terms
hereof or thereof.
(e) NO CONFLICTS. Except as disclosed in SCHEDULE 2.1(e)
hereto, the execution, delivery and performance of the Transaction Documents by
the Company, the performance by the Company of its obligations under the
Debentures and Warrants and the consummation by the Company of the transactions
contemplated herein and therein do not (i) violate any provision of the
Company's Articles of Incorporation or Bylaws, (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
to which the Company is a party or by which the Company is bound or by which any
of its respective properties or assets are bound, or (iv) result in a violation
of any Federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including Federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clause (i) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually
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or in the aggregate, have a Material Adverse Effect. The business of the
Company and its subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect. Except for the Information Statement on Schedule
14C to be filed by the Company with the Commission pursuant to Section 14(c)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"),
the Amendments to be filed with the State of Florida and the Shareholder
Approval, the Company is not required under federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliveror perform any of its obligations under the Transaction
Documents and the Debentures and Warrants, as the case may be, or issue and
sell the Debentures, Warrants and the Shares, as the case may be, in
accordance with the terms hereof or thereof (other than any filings which may
be required to be made by the Company with the Commission or state securities
administrators subsequent to the Closing and any registration statement which
may be filed pursuant hereto).
(f) COMMISSION DOCUMENTS; FINANCIAL STATEMENTS. The Common
Stock of the Company is registered under Section 12(b) or 12(g) of the Exchange
Act pursuant to a registration statement on Form 10 filed by the Company with
the Commission in July 1999 and, except as disclosed on SCHEDULE 2.1(f) hereto,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since April, 1997 (the date of its incorporation). The Company
has not provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, was required
to have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective dates, the Forms 10-Q for the fiscal quarters
ended each of September 30, 1999 and December 31, 1999 (collectively, the "Forms
10-Q") complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, none of the Forms 10-Q referred to
above contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of the dates
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thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) SUBSIDIARIES. The Forms 10-Q or SCHEDULE 2.1(g) hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such subsidiary.
For the purposes of this Agreement, "subsidiary" shall mean any corporation
or other entity of which at least a majority of the securities or other
ownership interest having ordinary voting power (absolutely or contingently)
for the election of directors or other persons performing similar functions
are at the time owned directly or indirectly by the Company and/or any of its
other subsidiaries. All of the outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully paid
and non-assessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon
any subsidiary for the purchase or acquisition of any shares of capital stock
of any subsidiary or any other securities convertible into, exchangeable for
or evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any subsidiary or any convertible securities,
rights, warrants or options of the type described in the preceding sentence.
Neither the Company nor any subsidiary is party to, nor has any knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of any subsidiary.
(h) NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, the
date through which the most recent quarterly report of the Company on Form 10-Q
has been prepared and filed with the Commission, a copy of which is included in
the Commission Documents, the Company has not experienced or suffered any
Material Adverse Effect, except as disclosed on SCHEDULE 2.1(h) hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed on
SCHEDULE 2.1(i) hereto, neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its subsidiaries
respective businesses since March 31, 1999 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company and
its subsidiaries, taken as a whole.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed, excluding any event or circumstance relating
solely to general economic, industry or political factors or conditions.
(k) INDEBTEDNESS. SCHEDULE 2.1(k) hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company or
any subsidiary, or for which the Company or any subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of
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$25,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations
in respect of Indebtedness of others, whether or not the same are or should
be reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business; and (c) the
present value of any lease payments in excess of $25,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor
any subsidiary is in default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property reflected
in the Commission Documents, free of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated on
SCHEDULE 2.1(l) hereto or such that, individually or in the aggregate, do not
cause a Material Adverse Effect on the Company's financial condition or
operating results. All said leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth on SCHEDULE 2.1(m)
hereto, there is no action, suit, claim, investigation or proceeding pending or,
to the knowledge of the Company, threatened, against or involving the Company,
any subsidiary or any of their respective properties or assets. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
subsidiary or any officers or directors of the Company or subsidiary in their
capacities as such.
(n) COMPLIANCE WITH LAW. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable Federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth on SCHEDULE 2.1(n) hereto or such that,
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) TAXES. Except as set forth on SCHEDULE 2.1(o) hereto, the
Company and each of the subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary for any fiscal year subsequent to April 1997
have been audited by the Internal Revenue Service. The
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Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) pending or threatened
against the Company or any subsidiary for any period, nor of any basis for
any such assessment, adjustment or contingency.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary or any Purchaser with respect to the
transactions contemplated by this Agreement.
(q) DISCLOSURE. To the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) OPERATION OF BUSINESS. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth on SCHEDULE 2.1(r)
hereto, and all rights with respect to the foregoing, which are necessary for
the conduct of its business as now conducted without any conflict with the
rights of others.
(s) ENVIRONMENTAL COMPLIANCE. The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. "Environmental Laws" shall mean all applicable laws relating
to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals
required under all Environmental Laws and used in its business or in the
business of any of its subsidiaries. The Company and each of its subsidiaries
are also in compliance with all other limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing or that may give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance. "Environmental
Liabilities" means all liabilities of a person (whether such liabilities are
owed by
8
such person to governmental authorities, third parties or otherwise) whether
currently in existence or arising hereafter which arise under or relate to
any Environmental Law.
(t) BOOKS AND RECORDS; INTERNAL ACCOUNTING CONTROLS. The
records and documents of the Company and its subsidiaries accurately reflect in
all material respects the information relating to the business of the Company
and the subsidiaries, the location and collection of their assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company or any subsidiary. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) MATERIAL AGREEMENTS. Except as set forth on SCHEDULE
2.1(u) hereto, neither the Company nor any subsidiary is a party to any written
or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or applicable form
(collectively, "Material Agreements") if the Company or any subsidiary were
registering securities under the Securities Act which has not been previously
filed with the Commission. The Company and each of its subsidiaries has in all
material respects performed all the obligations required to be performed by them
to date under the foregoing agreements, have received no notice of default and,
to the best of the Company's knowledge are not in default under any Material
Agreement now in effect, the result of which could cause a Material Adverse
Effect. No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits or
shall limit the payment of dividends on the Series A Preferred Stock (as defined
in Section 3.14 hereof), other preferred stock of the Company, if any, or its
Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.1(v) hereto, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or shareholder or any corporation or other entity
controlled by such officer, employee, consultant, director or shareholder, or a
member of the immediate family of such officer, employee, consultant, director
or shareholder.
(w) SECURITIES ACT OF 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Debentures and
9
Warrants hereunder and will comply with all applicable federal and state
securities laws in connection with the issuance of the Shares upon conversion
of the Debenture or exercise of the Warrants, as the case may be. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or
will sell, offer to sell or solicit offers to by any of the Debentures,
Warrants, Shares or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person, or has taken or will take any action so as
to bring the issuance and sale of the any of the Shares, Warrants and the
Debentures under the registration provisions of the Securities Act and
applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale
of any of the Debentures, Warrants or the Shares.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the Forms
10-Q, and except for the filing of any notice prior or subsequent to the Closing
that may be required under applicable state and/or federal securities laws
(which if required, shall be filed on a timely basis), including the filing of a
registration statement or statements pursuant to the Registration Rights
Agreement, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Debentures and
Warrants or for the performance by the Company of its obligations under the
Transaction Documents, the Debentures or the Warrants.
(y) EMPLOYEES. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on SCHEDULE 2.1(y) hereto. Except as set forth on SCHEDULE
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since March 31, 1999, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in
SCHEDULE 2.1(z) hereto, since March 31, 1999, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
10
(iii) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to shareholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights
of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $100,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiii) effected any two or more events of the foregoing
kind which in the aggregate would be material to the Company or its
subsidiaries; or
(xiv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(aa) USE OF PROCEEDS. The proceeds from the sale of the
Debentures and Warrants will be used by the Company for working capital and
general corporate purposes.
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
ACT STATUS. The Company is not a "holding company" or a "public utility
company" as such terms are defined in the Public Utility Holding Company Act of
1935, as amended. The Company is not,
11
and as a result of and immediately upon the Closing will not be, an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Debentures and Warrants will not involve any transaction which is
subject to the prohibitions of Section 406 of ERISA or in connection with which
a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code of
1986, as amended, provided that, if any of the Purchasers, or any person or
entity that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall
mean an "employee pension benefit plan" (as defined in Section 3 of ERISA) which
is or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(dd) DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Shares issuable upon conversion of the Debentures or exercise
of the Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Shares upon conversion of the
Debentures or exercise of the Warrants in accordance with this Agreement, the
Debentures and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
shareholders of the Company.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each of the Purchasers hereby makes the following representations and warranties
to the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) AUTHORIZATION AND POWER. Each Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Debentures and Warrants being sold to it hereunder. The execution, delivery and
performance of this Agreement, the Exchange Agreement and the Registration
Rights Agreement by such Purchaser and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action (if the Purchaser is an entity), and
no further consent or authorization of such Purchaser or its board of directors,
shareholders, or partners, as the case may be, is required. Each of this
Agreement, the Exchange Agreement and
12
the Registration Rights Agreement has been duly authorized, executed and
delivered by such Purchaser.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Exchange Agreement, the Registration Rights Agreement and
the consummation by each Purchaser of the transactions contemplated hereby and
thereby or relating hereto do not and will not (i) result in a violation of such
Purchaser's charter documents or bylaws (if the Purchaser is an entity) or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement, indenture
or instrument to which such Purchaser is a party, or result in a violation of
any law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Purchaser or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a Material Adverse Effect on such Purchaser). Such Purchaser is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Exchange Agreement or the Registration Rights Agreement or to purchase the
Debentures and Warrants in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, such Purchaser is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Company herein.
(d) ACQUISITION FOR INVESTMENT. Such Purchaser is purchasing
the Debentures and Warrants solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
Such Purchaser does not have a present intention to sell the Debentures or
Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Debentures or Warrants to or through
any person or entity; PROVIDED, HOWEVER, that by making the representations
herein and subject to Section 2.2(f) below, such Purchaser does not agree to
hold the Debentures or Warrants for any minimum or other specific term and
reserves the right to dispose of the Debentures or Warrants at any time in
accordance with federal and state securities laws applicable to such
disposition. Such Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Debentures and Warrants and that it
has been given full access to such records of the Company and the subsidiaries
and to the officers of the Company and the subsidiaries and received such
information as it has deemed necessary or appropriate to conduct its due
diligence investigation.
(e) ACCREDITED PURCHASERS. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) RULE 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges
that such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is
13
not available, such person will be unable to sell any Shares without either
registration under the Securities Act or the existence of another exemption
from such registration requirement.
(g) CONVERSION RESTRICTIONS. Notwithstanding anything to the
contrary set forth herein or in the Debentures and Warrants, in no event shall
any Purchaser be entitled to convert the Debentures or exercise Warrants to
purchase, in excess of that aggregate principal amount of the Debentures or that
aggregate number of Warrant Shares, which, upon giving effect to such conversion
or exercise, as applicable, would cause the aggregate number of shares of Common
Stock beneficially owned by such Purchaser and its affiliates to exceed 4.99% of
the outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the Purchaser and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the Debentures and
upon exercise of the Warrants with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining, unconverted
portion of the Debentures or exercise of the remaining, unexercised portion of
the Warrants owned by such Purchaser and its affiliates, and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 2.2 (g), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act.
(h) GENERAL. Each Purchaser understands that the Debentures
and Warrants are being offered and sold and the Shares are being issued in
reliance on a transactional exemption from the registration requirements of
federal and state securities laws and the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of such Purchaser to
acquire the Debentures, Warrants and Shares.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of each of the Purchasers and their permitted
assignees (as defined herein):
Section 3.1 SECURITIES COMPLIANCE.
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Debentures
and Warrants as required under Regulation D, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance to the Purchasers or subsequent
holders of the Shares.
14
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Debentures and Warrants.
Section 3.2 REGISTRATION AND LISTING. The Company will use its
best efforts to cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects with
its reporting and filing obligations under the Exchange Act, will comply with
all requirements related to any registration statement filed pursuant to this
Agreement or the Registration Rights Agreement, and will not take any action or
file any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein or in the Registration Rights
Agreement. The Company will use its best efforts to continue the listing or
trading of its Common Stock on the over-the-counter electronic bulletin board.
Section 3.3 INSPECTION RIGHTS. The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as the
Debentures remain outstanding and unpaid or unconverted, in whole or in part, or
so long as such Purchaser shall beneficially own any Debentures convertible
into, or Conversion Shares which, in the aggregate, represent more than 2% of
the total combined voting power of all voting securities then outstanding, to
examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees.
Section 3.4 COMPLIANCE WITH LAWS. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The
Company shall keep and cause each subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 REPORTING REQUIREMENTS. The Company shall furnish
the following to each Purchaser so long as the Debentures remain outstanding and
unpaid or unconverted, in whole or in part, or so long as such Purchaser shall
beneficially own any Debentures convertible into, or Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as
soon as available, and in any event within 45 days after the end of each of the
first three fiscal quarters of the Company;
15
(b) Annual Reports filed with the Commission on Form 10-K as
soon as available, and in any event within 90 days after the end of each fiscal
year of the Company;
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock; and
(d) Company Reports filed with the Commission on Forms 8-K as
soon as available, and in any event within ten (10) days after the date of such
filing.
Section 3.7 AMENDMENTS. The Company shall not amend or waive
any provision of the Articles of Incorporation or Bylaws of the Company, or
Registration Rights Agreement in any way that would adversely affect the rights
(including the conversion rights and voting rights) of the holders of the
Debentures or, upon exchange pursuant to the Exchange Agreement, the Series A
Preferred Stock.
Section 3.8 OTHER AGREEMENTS. The Company shall not enter into
any agreement in which the terms of such agreement would materially restrict or
impair the right or ability to perform of the Company or any subsidiary under
any Transaction Document, the Debentures or the Warrants, as the case may be.
Section 3.9 DISTRIBUTIONS. So long as any Debentures remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.10 REGULATION S. The Company covenants and agrees that
if the Company fails to register the Conversion Shares within 150 days from the
Closing Date under the terms and conditions of the Registration Rights
Agreement, then for so long as such registration statement is not effective and
as any of the Conversion Shares remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
the Company shall, in order to permit resales of the Conversion Shares pursuant
to Regulation S under the Securities Act, (a) continue to file all material
required to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act, and
(b) not knowingly engage in directed selling efforts in connection with the
resale of securities by any Purchaser under Regulation S.
Section 3.11 SUBSEQUENT FINANCING.
(a) Except as set forth on SCHEDULE 3.11(a) hereto and with
respect to (i) the issuance of securities (other than for cash) in connection
with a merger and/or acquisition, consolidation, sale or other disposition of
assets, (ii) the exchange of capital stock for assets, (iii) an offering of
securities at no less than the fair market price of such securities or (iv) the
issuance of capital stock or options to purchase shares of its capital stock
pursuant to any employee stock ownership plan currently in existence or pursuant
to or employee stock option plan for the grant of options to purchase less than
five percent (5%) of the outstanding shares of the Company's
16
Common Stock, the Company covenants and agrees that the Company will not
offer or sell Common Stock or any securities convertible or exchangeable into
Common Stock based on variable rates of conversion (meaning based on a market
price of the Common Stock as of the date of conversion or exchange) which the
Company proposes or intends to consummate with any third parties (the
"Subsequent Financing") on or before the forty-fifth (45th) day following the
effectiveness of the registration statement (the "Registration Statement") to
be filed pursuant to the Registration Rights Agreement without the prior
written consent of the Purchasers.
(b) The Company also covenants and agrees that during the one
(1) year period after the effective date of the Registration Statement the
Purchasers shall have a right of first refusal with respect to any Subsequent
Financing. The Company will promptly notify the Purchasers in writing of the
terms and conditions of the proposed Subsequent Financing. The Purchasers shall
have the right for ten (10) trading days to consummate the Subsequent Financing,
in whole but not in part, with the Company on the same terms and conditions as
the proposed Subsequent Financing. If the Purchasers do not consummate the
Subsequent Financing, the Company shall have forty-five (45) days thereafter to
consummate the Subsequent Financing with such third parties, on the same or
substantially the same terms, or on terms more favorable to the Company.
Section 3.12 RESERVATION OF SHARES So long as any of the
Debentures remain outstanding, the Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, no less
than 200% of the aggregate number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares.
Section 3.13 TRANSFER AGENT INSTRUCTIONS. The Company shall
issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates, registered in the name of each Purchaser
or its respective nominee(s), for the Shares in such amounts as specified from
time to time by each Purchaser to the Company upon conversion of the Debentures
or exercise of the Warrants, as the case may be, in the form of Exhibit D
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Shares under the Securities Act, all such certificates shall
bear the restrictive legend specified in Section 5.1 of this Agreement. The
Company warrants that no contrary instructions will be given by the Company to
its transfer agent and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.13
shall affect in any way each Purchaser's obligations and agreements set forth in
Section 5.1 to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Shares. If a Purchaser provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Shares may be made without registration
under the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.13 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the
17
transaction conemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 3.13
will be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Section 3.13, that the Purchasers
shall be entitled, in addition to all other available remedies, to an order
and/or injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
Section 3.14 AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION TO
AUTHORIZE PREFERRED STOCK. As promptly as practicable, and in any event no later
than May 24, 2000, the Company shall (i) file with the Secretary of State of the
State of Florida an amendment to the Company's Articles of Incorporation,
authorizing the issuance of up to 20,000,000 shares of preferred stock, par
value $.001 per share issuable in series with such designations, terms,
limitations and relative rights and preferences as may be fixed from time to
time by the Company's Board of Directors ("Amendment to the Articles of
Incorporation") and (ii) shall cause its Board of Directors to authorize the
creation of, and the issuance of up to 600,000 shares of, a series of
convertible preferred stock having such preferences and rights as set forth in
Exhibit E attached hereto (the "Series A Preferred Stock"), and to file a
certificate of designation with the Secretary of State of the State of Florida
creating the Series A Preferred Stock (the "Certificate of Designation" and
together with the Amendment to the Articles of Incorporation, the "Amendments").
Section 3.15 REGISTRATION OF SHARES. The Company and each
Purchaser shall enter into the Registration Rights Agreement, in the form of
Exhibit F hereto (the "Registration Rights Agreement").
Section 3.16 EXCHANGE AGREEMENT. The Company and the Purchaser
shall enter into the exchange agreement, in the form of Exhibit G hereto (the
"Exchange Agreement"), pursuant to which the Purchasers shall be entitled to
exchange the Debentures for shares of the Series A Preferred Stock upon the
terms and conditions set forth in the Exchange Agreement. All Debentures must
be exchanged for shares of the Series A Preferred Stock on or before May 30,
2000. The Exchange Agreement shall provide, and the parties hereto hereby
acknowledge and confirm, among other things, the provisions of this Agreement
shall apply to any shares of the Series A Preferred Stock issued in exchange of
the Debentures and that any provisions of this Agreement applicable to
Conversion Shares shall apply to any shares of Common Stock issuable upon
conversion of the Series A Preferred Stock (the "Preferred Conversion Shares").
Section 3.17 20% CONVERSION CAP.
(a) Notwithstanding any other provision herein to the contrary,
the Company shall not be obligated to issue any shares of Common Stock upon
conversion of the Debentures or the exercise of the Warrants if the issuance of
such shares of Common Stock, together with such other shares of Common Stock
required by the securities laws to be aggregated with the transactions
contemplated by this Agreement, would exceed 19.99% of the aggregate number of
shares of Common Stock issued and outstanding at such date (the "Exchange Cap"),
except that such limitation shall not apply in the event that the Company
obtains the approval of its Shareholders pursuant to the rules of The Nasdaq
Stock Market, Inc. for issuances of Common Stock in excess of such amount (the
"Shareholder Approval"); PROVIDED, HOWEVER, that
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notwithstanding anything herein to the contrary, the Company, will issue such
number of shares of Common Stock issuable upon conversion of the Debentures
or exercise of the Warrants, as applicable, at the then current Conversion
Price up to the Exchange Cap (after giving effect for any other shares of
Common Stock required by the securities laws to be aggregated with the
transactions contemplated by this Agreement).
(b) If, at any time, a holder of Debentures or of Warrants
requests that such Debentures be converted or such Warrants be exercised, as the
case may be, and such conversion or exercise would result in the issuance of
Common Stock which in the aggregate would exceed the Exchange Cap (after giving
effect for any other shares of Common Stock required by the securities laws to
be aggregated with the transactions contemplated by this Agreement), the Company
shall within 30 days of the Conversion Date or Exercise Date, as the case may
be, call a meeting, or solicit the written consent, of its shareholders in order
to seek Shareholder Approval, which shareholders meeting shall take place within
60 days of the Conversion Date or Exercise Date, as applicable. Except as
otherwise provided by Section 6(b)(iii) below, until such Shareholder Approval
or written consent is obtained, the Company shall not be required to convert
Debentures into Common Stock or issue Common Stock issuable upon the exercise of
the Warrants, as the case may be, in an amount greater than the product of (i)
the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is
the principal amount of the Debentures issued to such holder pursuant to this
Agreement or the aggregate number of shares of Common Stock for which the
holder's Warrant is exercisable (regardless of the limitation provided for in
this Section 3.17), as applicable, and the denominator of which is the aggregate
principal amount of all the Debentures issued pursuant to this Agreement or the
aggregate number of shares of Common Stock for which the Warrants issued
pursuant to this Agreement are exercisable (the "Cap Allocation Amount"). In
the event that the Company shall convert all of such holder's Debentures or
issue Common Stock issuable upon the exercise of all of such holder's Warrants,
as the case may be, into a number of shares of Common Stock which, in the
aggregate, is less than such holder's Cap Allocation Amount, then the difference
between such holder's Cap Alloction Amount and the number of shares of Common
Stock actually issued to such holder shall be allocated to the respective Cap
Allocation Amounts of the remaining holders of the Debentures or Warrants, as
applicable, on a pro rata basis in proportion to the principal amount of the
Debentures then outstanding and held by each such holder or the number of shares
of Common Stock into which the Warrant is exercisable, as the case may be.
Nothing in this provision shall limit a holder's right to request conversion of
the Debentures or the exercise of the Warrants.
(c) In the event that the Company fails to obtain Shareholder
Approval in accordance with this Section 3.17, the Company shall, within five
(5) business days after such failure, at the Company's option, either:
(i) (A) prepay the portion of the Debentures for which
the Company is unable to issue Common Stock in accordance with such Holder's
Conversion Notice (as defined in the Debenture), at a price equal to 125% of the
outstanding principal amount of the Debenture as of the date of such conversion,
after taking into account the extent, if any, to which the Company was able to
convert a portion of the Debenture into shares of Common Stock or, if
applicable, (B) redeem the portion of the Warrant for which the Company is
unable to issue
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Common Stock in accordance with such Holder's notice of exercise, at a
redemption price equal to 125% of the Warrant Price as of the date of such
exercise, after taking into account the extent, if any, to which the Warrant
was able to be exercised for shares of Common Stock in accordance with
Section 3.17(a) above; or
(ii) regardless of the Exchange Cap, issue shares of the
Common Stock in accordance with such Holder's (A) Conversion Notice or (B)
notice of exercise pursuant to the Warrant.
(d) Notwithstanding anything to the contrary contained in
Section 3.17(c) above, the Holder may elect to void its Conversion Notice or
notice of exercise, as the case may be, and retain or have returned, as
applicable, the portion of the Debentures or Warrants that was to be converted
or exercised pursuant to such Holder's notice (provided that a Holder's voiding
its Conversion Notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice).
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO SELL THE SECURITIES. The obligation hereunder of the Company to
issue and sell the Debentures and Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) ACCURACY OF EACH PURCHASER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date, as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing.
(c) CONSENTS OBTAINED. The Company shall have obtained those
consents of third parties (including, without limitation, governmental or other
regulatory agencies, foreign or domestic) required to be received in connection
with the issuance of the Debentures and the Warrants and the consummation of the
transactions contemplated hereby.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
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Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE SECURITIES. The obligation hereunder of each
Purchaser to acquire and pay for the Debentures and Warrants is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for each Purchaser's sole benefit and may be
waived by such Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date, as though made at that time, (except for representations and warranties
that speak as of a particular date), which shall be true and correct in all
material respects as of such date.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) NO SUSPENSION, ETC. From the date hereof to the Closing
Date, trading in the Company's Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited duration agreed to
by the Company, which suspension shall be terminated prior to the Closing Date),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State authorities,
nor shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis of such magnitude in its
effect on, or any material adverse change in any financial market which, in each
case, in the judgment of such Purchaser, makes it impracticable or inadvisable
to purchase the Debentures or Warrants.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(f) OPINION OF COUNSEL, ETC. At the Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of the
Closing, in substantially the form of Exhibit H hereto, and such other
certificates and documents as the Purchasers or their respective counsel shall
reasonably require incident to such Closing.
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(g) REGISTRATION RIGHTS AGREEMENT. At the Closing, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(h) EXCHANGE AGREEMENT. At the Closing, the Company shall have
executed and delivered the Exchange Agreement to each Purchaser.
(i) RESOLUTIONS. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) above in a form
reasonably acceptable to the Purchasers (the "Resolutions").
(j) RESERVATION OF SHARES. As of the Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Debentures or Series A Preferred
Stock and the exercise of the Warrants, as applicable, a number of shares of
Common Stock equal to at least 200% of the aggregate number of Conversion Shares
issuable upon conversion of the Debentures outstanding on such Closing Date
(after giving effect to the Debentures and assuming all such Debentures were
fully convertible on such date regardless of any limitation on the timing or
amount of such conversions) or issuable upon conversion of the Series A
Preferred Stock on the date of issuance of the Series A Preferred Stock (after
giving effect to the Series A Preferred Stock and assuming all such Series A
Preferred Stock were fully convertible on such date regardless of any limitation
on the timing or amount of such conversions) and 100% of the Warrant Shares
issuable upon exercise of the Warrants on the date of issuance of the Warrants
(after giving effect to the Warrants and assuming all such Warrants were fully
exercisable on such date regardless of any limitation on the timing or amount of
such conversions)
(k) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(l) SECRETARY'S CERTIFICATE. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles of Incorporation, (iii) the Bylaws, each
as in effect at such Closing, and (iv) the authority and incumbency of the
officers of the Company executing the Transaction Documents and any other
documents required to be executed or delivered in connection therewith.
(m) OFFICER'S CERTIFICATE. The Company shall have delivered to
such Purchaser a certificate of an executive officer of the Company, dated as of
the Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of the Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
such Closing Date.
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ARTICLE V
LEGENDS
Section 5.1 LEGEND. Each instrument or certificate representing
the Debentures, Warrants or the Shares, as the case may be, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THESE SECURITIES REPRESENTED BY THIS INSTRUMENT OR CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Shares
without the legend set forth above solely in connection with the sale or
transfer of such Shares by the holder. Such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Shares under the
Securities Act is not required in connection with such proposed transfer; or
(ii) a registration statement under the Securities Act covering such proposed
disposition has been filed by the Company with the Commission and is, at the
time of transfer, effective under the Securities Act; and (b) the Company has
notified such holder that either: (i) in the opinion of Company counsel, the
registration or qualification under the securities or "blue sky" laws of any
state is not required in connection with such proposed disposition, or (ii)
compliance with applicable state securities or "blue sky" laws has been
effected. The Company will use its best efforts to respond to any such notice
from a holder within ten (10) days. In the case of any proposed transfer under
this Section 5.1, the Company will use reasonable efforts to comply with any
such applicable state securities or "blue sky" laws, but shall in no event be
required, in connection therewith, to qualify to do business in any state where
it is not then qualified or to take any action that would subject it to tax or
to the general service of process in any state where it is not then subject.
The restrictions on transfer contained in Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement.
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ARTICLE VI
INDEMNIFICATION
Section 6.1 GENERAL INDEMNITY. The Company agrees to indemnify
and hold harmless the Purchasers and any finder (and their respective directors,
officers, affiliates, agents, successors and assigns) from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorney's fees, charges and disbursements)
incurred by the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein.
Section 6.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent
24
to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
the indemnified party of a release from all liability in respect of such
claim. The indemnification required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability
is incurred, so long as the indemnified party irrevocably agrees to refund
such moneys if it is ultimately determined by a court of competent
jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause
of action or similar rights of the indemnified party against the indemnifying
party or others, and (b) any liabilities the indemnifying party may be
subject to pursuant to the law.
ARTICLE VII
MISCELLANEOUS
Section 7.1 FEES AND EXPENSES. Except as otherwise set forth in
Schedule 7.1 hereto or elsewhere in this Agreement, the Registration Rights
Agreement, the Debentures, the Warrants or the Exchange Agreement, each party
shall pay the fees and expenses of its advisors, counsel, accountants and other
experts, if any, and all other expenses, incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement,
PROVIDED that the Company shall pay, at the Closing, all attorneys fees and
expenses (exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchasers up to $50,000 in connection with the preparation, negotiation,
execution and delivery of the Transaction Documents and the transaction
contemplated hereunder. In addition, the Company shall pay all reasonable fees
and expenses incurred by the Purchasers in connection with any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents, or incurred in connection with the enforcement of this Agreement or
any of the other Transaction Documents, including, without limitation, all
reasonable attorneys fees.
Section 7.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Transaction Documents were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
(b) Each of the Company and the Purchasers hereby irrevocably
(i) agrees that any legal suit, action or proceeding arising out of or relating
to this Agreement shall be instituted exclusively in the New York State Supreme
court, County of new York or in the United States District court for the
Southern District of New York, (ii) waives any objection which each of them may
have now or hereafter based upon FORUM NON CONVENIENS or to the venue of any
such suit, action or proceeding, and (iii) consents to the jurisdiction of the
New York State Supreme Court, County of New York and the United States District
court for the Southern
25
District of New York in any suit, action or proceeding. Each of the Company
and the Purchasers further irrevocably agrees to accept and acknowledge
service of any and all process which may be served in any such suit, action
or proceeding in the New York State Supreme Court, County of New York or in
the United States District Court for the Southern District of New York and
agrees that service of process upon each of them, mailed by certified to such
party at the address in effect for notice to such party, will be deemed in
every respect effective service of process upon such party, in any suit,
action or proceeding. EACH OF THE COMPANY AND THE PURCHASERS HEREBY FURTHER
WAIVES TRIAL BY JURY IN ANY ACTION TO ENFORCE THIS AGREEMENT AND IN
CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSS-CLAIM ASSERTED IN ANY SUCH
ACTION. Nothing in this Section 7.2 shall affect or limit any right to serve
process in any other manner permitted by law.
Section 7.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement
contains the entire understanding of the parties with respect to the matters
covered hereby and, except as specifically set forth herein or in the
Transaction Documents, neither the Company nor any of the Purchasers makes any
representations, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least two-thirds (2/3) of
the Debentures then outstanding, and no provision hereof may be waived other
than by an a written instrument signed by the party against whom enforcement of
any such amendment or waiver is sought. No such amendment shall be effective to
the extent that it applies to less than all of the holders of the Debentures
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents or holders of the Debentures, as the
case may be.
Section 7.4 NOTICES. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery, telecopy or facsimile at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first (1st)
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second (2nd) business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such
communications shall be:
26
If to the Company: Internet Sports Network, Inc.
101 Bloor Street West, Suite 200
Toronto, Ontario M5S 2Z7
Attn: David Toews
Telephone Number: 416-599-8800
Facsimile Number: 416-921-1302
with copies to: Akerman, Senterfitt & Eidson, P.A.
One S.E. 3rd Avenue, 28th floor
Miami, Florida 33131
Attn: Kara MacCullough, Esq.
Telephone Number: 305-982-5592
Facsimile Number: 305-374-5095
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser's counsel as set forth on Exhibit A or
as specified in writing by such Purchaser
with copies to: Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attn: Christopher S. Auguste, Esq.
Telephone Number: (212) 704-6000
Fax: (212) 704-6288
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days written notice of such changed address to the other party
hereto.
Section 7.5 WAIVERS. No waiver by either party of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 7.6 HEADINGS. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. After the Closing, the assignment by a party to this Agreement of any
rights hereunder shall not affect the obligations of such party under this
Agreement.
27
Section 7.8 NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 7.9 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions.
Section 7.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closing
until the date three (3) years from the respective Closing Dates, and the
agreements and covenants set forth in Articles I, III, V, VI and VII of this
Agreement shall survive the execution and delivery hereof and the Closing so
long as the Debentures remain outstanding and unpaid or unconverted, in whole or
in part, or until the Purchasers in the aggregate beneficially own (determined
in accordance with Rule 13d-3 under the Exchange Act) Shares less than 2% of the
total combined voting power of all voting securities then outstanding, whichever
is later, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.11
and 3.12 shall not expire until the Registration Statement required by Section 2
of the Registration Rights Agreement is no longer required to be effective under
the terms and conditions of Registration Rights Agreement.
Section 7.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 7.12 PUBLICITY. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.13 SEVERABILITY. The provisions of this Agreement and
the Transaction Documents are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement or the Transaction Document
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, or the Registration
Rights Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.
Section 7.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers
28
shall execute and deliver such instrument, documents and other writings as
may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement and the
Transaction Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
INTERNET SPORTS NETWORK, INC.
BY: /s/ Andy DeFrancesco
Name: Andy DeFrancesco
Title: President
[SIGNATURES CONTINUED ON THE NEXT PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
LIVINGSTON KOSBERG TRUST
By:_/s/ Livingston Kosberg
Name: /s/ Livingston Kosberg
Title: Trustee
ANEGADA FUND LTD.
By: /s/ Carlo Cull
Name: Carlo Cull
Title:
CUTTYHUNK FUND LTD.
By: /s/ Geoffrey M. Lewis
Name: /s/ Geoffrey M. Lewis
Title: Director
TONGA PARTNERS, LP
By: /s/ Carlo Cull
Name: Carlo Cull
Title:
ASPEN INTERNATIONAL, LTD.
By:/s/ Diedre M. McCoy
Name: Diedre M. McCoy
Title: Director
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EXHIBIT A
LIST OF PURCHASERS TO SECURITIES PURCHASE AGREEMENT
PRINCIPAL AMOUNT OF
NAMES AND ADDRESS DEBENTURES AND AMOUNT OF DOLLAR AMOUNT
OR PURCHASERS WARRANT SHARES PURCHASED OF INVESTMENT
- ------------------------- ------------------------ -------------
Anegada Fund Ltd. Debentures: $ 200,000 $ 200,000
c/o 600 California Shares issuable upon
Street, 14th flr exercise of Warrant:
San Francisco, California 60,000
94108
Tel. No.
Fax No.
Attn:
Aspen International, Ltd. Debentures: $ 503,041 $ 503,041
c/o 600 California Shares issuable upon
Street, 14th flr exercise of Warrant:
San Francisco, California 150,000
94108
Tel. No.
Fax No.
Attn:
Cuttyhunk Fund Ltd. Debentures: $ 500,000 $ 500,000
c/o 600 California Shares issuable upon
Street, 14th flr exercise of Warrant:
San Francisco, California 150,000
94108
Tel. No.
Fax No.
Attn:
J. Livingston Kosberg, Debentures: $ 500,000 $ 500,000
Trustee for The Shares issuable upon
Livingston Kosberg Trust exercise of Warrant:
c/o 600 California 150,000
Street, 14th flr
San Francisco, California
94108
Tel. No.
Fax No.
Attn:
Tonga Partners, LP Debentures: $ 253,041 $ 253,041
c/o 600 California Shares issuable upon
Street, 14th flr exercise of Warrant:
San Francisco, California 75,000
94108
Tel. No.
Fax No.
Attn:
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